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Egypt Is Confident $23 Billion Debt Inflows Won't Flow Out

(Bloomberg) -- Egypt’s finance minister said he’s confident the $23 billion that foreigners invested in Egyptian Treasury bills will stay in the country, thanks to its improved credit profile and rising global liquidity.

The trade-off between risks and returns remains attractive, and investments have been rising in “recent weeks and months,” Amr El-Garhy said in an interview with Bloomberg TV. Credit rating companies, which haven’t significantly upgraded Egypt’s junk rating in the past two years, should give Egypt a “better look,” El-Garhy said.

Rising global interest rates, coupled with lower yields inside Egypt, have fueled concerns about the nation’s ability to continue to attract money from abroad. The funds played a key role in bridging the gap in Egypt’s finances with the outside world, and have helped boost the nation’s foreign reserves to record levels.

El-Garhy said the level of foreign investments in Egypt’s high-yielding local currency debt is “manageable,” and below historical 2010 highs equivalent to almost $30 billion in today’s terms.

The Egyptian economy reappeared on foreign investors’ radar after the government embarked on an economic overhaul plan in November 2016 that included floating the currency and slashing subsidies. The measures, backed by the International Monetary Fund, helped economic growth to pick up to about 5 percent and enabled authorities to raise more than $13 billion on international bond markets.

The weaker currency, however, propelled inflation above 30 percent last year, pressuring Egypt’s 96 million people, half of whom already lived near or below the poverty line. Price increases slowed this year, with the annual rate easing to 13.3 percent in March.

The minister said Egypt is witnessing “good momentum” when it comes to inflation, and reiterated predictions that it would drop as low as 11 percent by the end of 2018.

El-Garhy also said:

“Nothing is cast in stone” with regard to the goal of scrapping the bulk of fuel subsidies in 2019; the government is trying to balance spending cuts with the impact on citizens

The government is talking with banks on ways to hedge the increase in oil prices but wants to “pick a good time for it”

Egypt expects $10 billion in foreign direct investment in the fiscal year ending June 30, and targets a 20 percent to 25 percent increase in the 12 months following

The bulk of foreign direct investments will not necessarily originate from oil-rich Arab countries because many multinational companies are “seriously” considering creating regional hubs for their activities in Egypt